Does household financial access facilitate law compliance? Evidence from Mexico

- Private markets can impose incentives for law compliance.
- We measure the impact of access to Banco Azteca on formality.
- We compare households in municipalities where Banco Azteca opened with those where it did not.
- Before the bank's expansion, there is no correlation between Azteca and bank access or formality.
- After the expansion, exposed households have higher bank access and are more likely formal.

We investigate the impact of financial access on law compliance (whether workers are registered in a mandated social security system). In contrast to previous studies that focus on firms' access to credit, we investigate workers' access to credit. Exploiting the geographic variation in financial access due to Banco Azteca's opening in Mexico in 2002 that changed financial access by poor people almost over-night, we find that financial access increased the probability of getting formalized.